Public utility commissions are starting to recognize and reference grid architecture work, as it allows them to more accurately lay out their qualities in a way that is logically consistent and provides actionable direction. With investment needed in systems to coordinate activities and power system management at the edge, commissions need to have confidence that the investments are aligned with the requirements of an evolving grid and are commercially prudent.
Price cap regulation as employed in utility regulation is one mechanism that provides good incentives to reduce costs. But when increasing profits are realized, it ends up creating pressure to tighten price regulation, which then in turn increases regulatory risk and raises the cost of investment. The major challenge in designing regulation for a restructured industry is to provide adequate assurances of investor protection. This will safeguard that the necessary investments will be made.
Historically, our system of regulation has:
- Provided an advocate/single voice for customers.
- Eliminated barriers to entry.
- Acted as consumer educator.
- Enabled a utility to raise financing for investment at acceptable cost.
- Provided incentives for efficiency in operation, pricing, investment and innovation.
Retaining affordability will be difficult as more regulatory changes are required, driven by social factors and customer economics outside of utility control. These regulations are subject to rapid changes and are harder to predict. Thus, a structured approach to grid architecture makes a lot of sense; however, it still leaves a gap between what the customer wants to see and how utilities deliver it.
Given the coming changes, regulators are encouraging customers and distribution utilities to work together to solve issues alongside a wide array of third parties, aggregators and additional support groups. Getting this new ecosystem to work will be a major hurdle going forward, given the divergent goals in the ecosystem and the lack of a single leading entity.
The way we consume electricity is changing, placing demands on the electric distribution grid that its creators never envisioned. To address growing needs, the grid needs transformation. Yesterday’s grid planning methods must yield to holistic, data-driven distribution planning to optimize the investments of limited capital resources into grid infrastructure and maximize the effectiveness of transformative technologies.
For example, one question left unanswered is, “What should the design capacity of a circuit be in a distribution system?” And this leads to other questions. Should it be designed to meet the current peak load? Or enough to support one electric vehicle in each garage? Perhaps it should support net‑zero housing? Or, skip the grid entirely and move directly to batteries? These fundamental questions must be answered so that 40- to 60-year investments in grid infrastructure can be the most effective.